The Financial Crisis, Then and Now: Ancient Rome and 2008 CE

December 10, 2018

Amid the outpouring of ten-year retrospectives on the economic crisis of 2008, historian Charles Bartlett asks what a crisis that occurred almost 2000 years ago can tell us about the enduring relationships between legislative agendas, financial crises, and policy responses.

By Charles Bartlett

In 33 CE, the Roman empire experienced a severe economic crisis. The crisis occurred when a law requiring creditors to invest a proportion of their capital in Italian lands was revived after observance and enforcement of it had lapsed.One of the purposes of this law was to mark Italy as a unique area within the empire, by appealing to the notion—widespread among Rome’s elite—that Italian agriculture had been foundational to the Roman state and was still integral to Roman mores.

The rush by creditors to buy land sparked a credit crunch. After some turmoil and ineffectual action on the part of the senate, the Roman emperor Tiberius eventually made vast sums of money available for interest-free loans, thereby halting the crisis.

These three elements of the crisis—namely the efficacy of a guarantee from the central monetary authority, the ad-hoc nature of response spread across numerous governmental entities, and the political program of the underlying legislation—are perennially important considerations that should enter any account of a large-scale economic crisis.

Ancient Rome

By 33 CE, Rome had expanded over the course of centuries from a city-state on the banks of the Tiber River to an empire stretching across the Mediterranean basin and radiating outward to envelop Spain, France, and much of Germany in the northwest, and a large swath of Egypt and Libya in the southeast. At the beginning of this long expansion, Rome had been a republic in which, to varying degrees, the senate directed politics, the army, and the administration.

In the first century BCE, Rome went through a series of civil wars, when powerful individuals challenged the control of the senate and related republican institutions. As a result of these conflicts, Rome became an empire by 27 BCE, where the emperor, despite presenting himself as princeps, or “first citizen,” was a monarch in all but name. The senate and other trappings of republicanism remained during the empire, but only with a diminished role.

In 33 CE the emperor was Tiberius, who had succeeded Augustus in 14 CE. Throughout his forty-five-year reign from 31 BCE to 14 CE, Augustus had established and consolidated the position of the princeps, aggregating to himself immense political power and remaking the physical landscape of the city of Rome. He initially spent huge sums in order to secure the support of the people and the army, but later drastically curtailed his expenditures. The results of these policies would be felt acutely during Tiberius’s subsequent reign.

A large part of Augustus’s expenditures went to installing the veterans who had fought for him on farms of their own. Agriculture was far and away the most important sector of the ancient economy, but it was also crucial to the Roman ethos. The effects of this can be seen not only in the soldiers’ desire for land, but also in the self-stylization and indeed the conduct of the Roman elite. Senators wrote treatises on farming, and even passed a law forbidding themselves from owning large transport ships, so that they would not be drawn into long-distance trade and away from the farm.1 And within this environment, land in Italy was most prized.

While agriculture loomed large in their collective identity, the elite always sought out other investments as well. Although they could not own large transport ships, senators were allowed to lend at interest. Augustus’s largesse pushed down interest rates in Italy, according to one of our sources, from 12 percent to 4 percent, and so increasingly the loans that senators made were to agricultural and commercial operations elsewhere in the empire. Additionally, money flowed out of Italy to pay for imports, most conspicuously the fineries of the East that were the target of Roman moralists, who, of course, extolled instead Rome’s supposedly fundamental agrarian character.2 The combined result of these developments was that by the early 30s CE, the amount of money in circulation in Italy had been declining steadily for forty years.3

The Crisis Itself

In setting the scene for his description of the crisis, Cornelius Tacitus (a senator who wrote approximately eighty years after the crisis and provides the best ancient account of the events) tells us that usury had long plagued Rome, resulting in high interest rates and harsh enforcement of contractual terms.4 In the early 40s BCE, Julius Caesar had attempted to remedy this problem by passing a law stating that creditors had to invest a certain portion of their capital in Italian land in order to lend at interest; we do not know the exact date or provisions of this legislation. The law fell into disuse over the following decades, but it remained on the books and was revived in 33 CE when a flood of cases brought against prominent individuals alleged widespread violation of the land-owning requirement.

The number of cases quickly overwhelmed the court tasked with these matters, which referred the issue to the senate, and the senate in turn referred the issue to Tiberius. Amazingly—and hyperbolically, in all likelihood—Tacitus tells us that every one of the 600 senators was in personal violation of this law, and they sought Tiberius’s indulgence. He instituted a grace period of eighteen months in which all personal finances were to be brought into accordance with the law.

What followed was a credit crisis. Creditors called in all their loans in order to buy land, and in addition, according to Tacitus, the sale at auction of the assets of those who had already been convicted of violating this law—and whose property had therefore been seized—concentrated substantial amounts of coin in the imperial treasury and out of circulation. The senate then passed a resolution that creditors invest two-thirds of their capital in Italian land, and that debtors pay back the same amount of their loans.5 But what happened in fact was that creditors demanded that loans be paid back in their entirety, and debtors were morally obligated to pay the full amount.

This touched off the worst of the crisis. Debtors tried to sell their lands to raise funds for repayment, but the flood of property onto the market depressed prices. Those who could not make enough from the sale of their lands to repay their loans, as well as those who could not sell at all, turned to money-lenders who charged exorbitant rates. This recourse failed in many cases, and a great number of debtors were brought into court. When judgments came against them, many were ejected from their lands.

The senatorial decree had made matters worse. It was intended to prop up land values, but because it forced many to sell their properties, prices dropped. The creditors who were required to invest in land held onto the funds from the loans they had managed to call in, figuring that they would allow land prices to continue to fall before they made the purchases that would bring them into conformity with the law. The result was a collapse in land values and a shortage of credit that drove up interest rates.

At this point, Tiberius stepped in. He distributed 100 million sestertii to specially chartered banks in order to make available three-year, interest-free loans.6 Each loan was secured against land of twice its value. Tacitus tells us that this restored credit and encouraged the eventual reemergence of private lenders as well. His description of the events ends with the statement that the provisions of the senatorial decree concerning the amount of capital to be invested in land was not followed, for, “as quite often in such things,” observance of the law was strict at first, but lax in short order.

The Ancient Romans on the Crisis

As suggested above, the ancient sources that relate the events of the crisis are not nearly as numerous or lengthy as we would hope. Indeed, the preface to any particular study or memoir of the 2008 crisis is likely to be far longer than all of them put together.7 Nevertheless, we can discern two broad sets of interests that predominate in these accounts.

The first is a concern for the moral aspects and social consequences of credit and capital. It is again instructive to look to Tacitus, who includes in his account of the crisis a characterization of the deleterious effects of usury from the founding of Rome. He calls the practice “the most frequent cause of dissension and discord” and underscores the persistence of those, unnamed, who found new ways to defraud after a specific law suppressed any particular scheme. As we saw, he also focuses on the moral obligation of debtors to repay the entirety of their loans when creditors call them in, even when the senate had decreed that only two-thirds of a loan had to be paid back immediately. This offers us a fascinating glimpse into the impact of senatorial pronouncement on the situation against a backdrop of prevailing social norms.

Moreover, we must note that Tacitus fixes squarely upon the reputational consequences of losing one’s land when he specifies that adverse judgments deprived individuals of “their rank and reputation.” The word that I translate as “rank,” dignitas, meant one’s political standing at the top of the social hierarchy, which was far more rigidly institutionalized in the Roman world than such ideas are in the twenty-first century. We see as well that it was the diminution of some of the most prominent men at Rome that prompted Tiberius to act, at least according to Tacitus.

The second set of interests we see in the ancient sources is political, and it centers on the conduct of the senators and Tiberius, and perhaps most of all on the power of the senate vis-à-vis the emperor. There are several factors that contribute to the impression that the senate is now ineffective in situations such as this. The first is that during the republic, matters were often referred to the senate by high-level magistrates, who were themselves senators. Here, however, once the number of cases caused the praetor, the magistrate presiding over the law courts, to seek assistance from the senate, this body then rather immediately called for Tiberius’s help.

We can propose at least three explanations for why the senate acted this way. First, the senators may not have wanted the responsibility of making a policy decision that could have deleterious effects, and passed the matter on. Second, the senators may have genuinely undertaken to provide guidance to the praetor but failed to do so, and then sought Tiberius’s help. And third, and Tacitus makes us think that this is most likely, the senate did not endeavor to debate the matter at all, but because they stood in violation of the law, the senators pleaded for Tiberius’s indulgence.

The first and third possibilities both speak to senatorial inaction, but whereas the first would have been a strategic calculation, the third asserts that the illegal conduct of its members was overwhelming and rendered the senate dysfunctional. In all cases, there was a chance for the senate to act, but in a situation of institutional uncertainty—we do not know the preferred or constitutional course of action, and so the different governmental entities could certainly have jockeyed with each other—the senate chose here to pass on the issue. The senate did later issue the decree that creditors collect two-thirds of outstanding loans and debtors pay back the same amount, but this had disastrous effects, as we have seen.

When we look to Tiberius on the other hand, we see that once the matter was referred to him, he first created a grace period rather than continuing with the prosecutions that had caused the situation. This relaxed the pressure, albeit only temporarily. It was his decision, as the person setting monetary policy, to make available vast sums for interest-free loans that finally put an end to the crisis. Within this context of negotiations across government entities, his provisions of time and liquidity proved far more effective than was the conduct of the senators.

As part of our examination of political action, we can underscore as well how the two entities—the senate and the emperor—used their legislative powers throughout the crisis. It is almost certain that both the senatorial decree and the imperial pronouncement had the force of law at this point in Roman history, and so this is not a question of how the entities’ legislative capacities differed from one another.8 Of interest rather is how decisions were made in each context, which we have discussed above, and especially how this ad-hoc, crisis-management style of decision making differed from the conduct of the Roman jurists, who produced the monumental corpus of private law that is often singled out as Rome’s greatest contribution.

Elsewhere in my work I have argued that it was primarily imperial administration and economic development that led to the fundamental rules of Roman property law, rather than the self-referential thought and writings of a class of professional jurists.9 In 33 and in 2008, we saw administrators and politicians making the regulations governing property, and doing so not to iron out logical inconsistencies in the law, but rather with the express purpose of ending and economic—and political—crisis. We see at times confused relations among these different governmental entities, but that it is politicians handling this problem is not in doubt.

Echoes of the Crisis of 33 CE

What general similarities can we discern between the crisis of 33 and the crisis of 2008? While the institutional differences between Rome and the United States do not permit us to say simply that Tiberius used quantitative easing to end the crisis, we must note the effectiveness of his provision of interest-free loans in stopping the crisis.10 We are reminded here of the liquidity provided by the Troubled Asset Relief Program (TARP), and indeed both cases illustrate the inherent difficulty of pricing assets—whether mortgage securities or Italian land—for the purposes of collateralization when the market for such assets is collapsing.11 We might remember as well Mario Draghi’s famous promise to do “whatever it takes” to stabilize the euro as another instance where the clear declaration of governmental intent curbed the panic. In both 33 and 2008, governmental commitment to stabilization and provisions of liquidity were what halted the financial crisis.

We must note as well the ad-hoc nature of decision making in both cases, and the attempted coordination across governmental agencies. The twenty-first-century state is vastly more complicated than was the first-century state, but in both situations we see different entities arranging policy with an eye toward other elements within the government, and toward their own administrative capacities. A consistent refrain in Ben Bernanke’s memoir of the recent crisis is his attention to the mandate of the Federal Reserve, and every major account of the 2008 crisis stresses coordination across agencies and among countries.12

And of course there were setbacks in both contexts. The Roman senate did not act when first presented with the problem, and the United States Congress rejected the first TARP plan. These were hardly the only two missteps. Both situations were quite turbulent, and at first sparked a focus on stopping the hemorrhaging taking place in financial markets, rather than on careful updating of the relevant areas of law aimed at long-term societal adjustments. And in both situations, we observe that the actions taken with this focus had lasting effects on the asset class in question. In each case, such actions further marked off the asset class as different from other investments in terms of ideology or politics, and therefore in terms of regulation as well, and constrained subsequent legal innovation with regard to it.

At Rome, Italian land used for farming was prized for the social prestige it conferred, whereas in the United States home-ownership has long been extolled by politicians and social commentators. And in each situation the importance was by no means only rhetorical. We have touched upon the centrality of agriculture to the ancient economy, and of course it was the special characteristics of the mortgage market—often the result of legislation stemming from political initiatives—that gave the 2008 crisis its particular form.13

The juxtaposition of these crises suggests that widespread acceptance of certain political projects can lead to legislation that distorts particular investments, that the resulting situation may be unstable, and that if a crisis does emerge, politicians and bureaucrats, rather than jurists or lawyers, are often the ones who make first-order decisions aimed at stopping the crisis. These first-order decisions in turn determine the contexts of subsequent studies and proposals by scholars and other experts. And while they can be rather unpopular, monetary backstops are at times necessary to halt crises. In such instances, who receives government support will likely emerge as a political issue in subsequent years.

Former Weatherhead Center Graduate Student Associate Charles Bartlett holds a PhD in ancient history from the Department of the Classics at Harvard University. His dissertation examined the economic and political circumstances of the formation of substantive private law during the late Roman republic and early Roman empire. In addition to his dissertation topic, he studies law and political economy across a range of periods and places.

References

There were various ways of circumventing this law to be sure; cf. J.R. Townshend “Lex Claudia, 218 BCE,” Oxford Classical Dictionary, 2017. Nevertheless its ideological force is impressive.

This type of social commentary had a long history at Rome by this point, and it included such figures at Cato the Elder (234 to 149 BCE) and Gaius Lucilius (c. 180 to 103/2 BCE). Seneca the Younger (4 BCE to 65 CE) would later come to be the most famous critic of many Roman social tendencies during the early empire.

Tacitus recounts the crisis at Annals book 6, chapters 16–17. A.J. Woodman, Tacitus, The Annals. Translated with Introduction and Notes (Hackett, 2004) stands out among the many translations of the text.

It is not exactly clear whether the section of Tacitus’s text reporting the provisions of the senatorial decree comes down to us intact, which is a common problem in ancient historical work, but this is almost certainly what the law said; indeed the description in the text of the events that follow only makes sense if we assume that both creditors and debtors were subject to the senatorial decree concerning capital investment. Cf. A. Tchernia, The Romans and Trade (Oxford, 2016), pp. 177–8.

To give a sense of the sums involved, Augustus had increased the property qualification of senators from 800,000 to 1,200,000 sestertii, and in doing so rendered a number of men ineligible to be senators; he then gave them the funds to make up these shortfalls, presenting the act as one of magnanimity. The notion of so starkly defining political status by property-level is foreign to us, but here the point is that not all of the 600 richest men in the Roman empire had 1/100 of the funds dispensed here.

In addition to Tacitus (c. 56 to c. 120 CE), our sources for the crisis are Suetonius Tranquillus (c. 69 to c. 125 CE), who wrote biographies of many of the Roman emperors (his account of the crisis is found at Life of Tiberius chapter 48 section 1), and Cassius Dio (c. 155 to c. 235 CE), a senator from what is now Turkey who wrote a monumental history of Rome in Greek (his version is found at History of Rome book 58 chapter 21 sections 4–5).

Our earliest reliable account of the sources of law during the Roman empire, that of the jurist Gaius found at Institutes book 1 section 2, was written just over a century after the events of interest here, but it seems that we can apply his description to 33 as well.

Henry Paulson’s discussion of this problem in his memoir is particularly cogent; cf. H.M. Paulson, On the Brink (Hachette, 2013). We do not have indication of how this difficulty was handled in 33.

B.S. Bernanke, The Courage to Act (Norton, 2015). This and related concerns pervade other accounts of the crisis as well, especially those of Timothy Geithner and Mervyn King. Cf. T.F. Geithner, Stress Test: Reflections on Financial Crises (Broadway, 2014) and M. King, The End of Alchemy: Money, Banking, and the Future of the Global Economy (Norton, 2016).

Tooze is quite interested in the other crises that may have emerged around 2007/8 had not the sub-prime crisis begun. Cf. A. Tooze, Crashed: How a Decade of Financial Crises Changed the World (Viking, 2018).

Captions

The emperor at the time of the economic crisis of 33 CE was Tiberius Caesar. His handling of the crisis, as well as the political circumstances of its creation, bear some striking similarities to what we witnessed in the years surrounding 2008. Image credit: Tiberius, Emperor of Rome. Line engraving, after A. Sadeler after Titian, detail. Bakewell, Thomas (Publisher), active approximately 1730? Emperors and empresses of Rome. Emperors; no. 3. Wellcome Library no. 664545i.

Tiberius and other emperors minted coins of different denominations, and varied the inscriptions and imagery on their coins throughout their reigns. The image on the obverse of this sestertius is a temple wherein sits the goddess Concordia, who is surrounded by several other deities. The inscription on the reverse of this coin reads TI C[A]ESAR DIVI AVG F AVGVST PM TR POT XXXII (for XXXVII or more likely XXXIIX), which translates to “Tiberius Caesar Augustus, son of the Divine Augustus, Pontifex Maximus, with Tribunician Power for the 32nd time.”; The reverse of this coin is countermarked NCAPR; this acronym likely translates to Nerva Caesar Augustus approved [this minting].” The large “SC” stands in for “Senatus Consultum” or “senatorial decree.” Image credit: Sestertius of Tiberius, Rome. Harvard Art Museums, object number: 1942.176.95, 35-36 CE, Tiberius, Roman (r. 14-37 CE). Harvard Art Museums/Arthur M. Sackler Museum, The George Davis Chase Collection of Roman Coins, Gift of George Davis Chase, Professor of Classics and Dean of Graduate Study at the University of Maine.